TIOL-DDT 43 · the untouched capture
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<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> <b><font color="#0000FF" size="3">TIOL-DDT
43</font><br>
31 1 2005<br>
Monday</b></font></p>
<p align="center"><font color="#009933" size="2" face="Verdana, Arial, Helvetica, sans-serif">
<b>Retrospective Legislation – fair and/or legal?</b></font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> <b>THE</b> <b>ITC
bomb has exploded.</b> Government has by Ordinance nullified the Supreme Court
judgement retrospectively amending several notifications. It is a great testimony
to the calibre of our bureaucrats that they could actually procure notifications
issued in 1983 to 1985 and amend them with hardly any mistakes. When called
upon to do a good job, especially when the stakes are as high as Rs 800 crores,
our babus are really capable. They deserve all praise for an excellent job
even though there are a couple of mistakes.<br>
<br>
But the question that agitates every mind is whether the Government is fair
and right in bringing retrospective legislation and that too by Ordinance?
Every student of law is aghast at the blatant way the Government is nullifying
Supreme Court orders by unfair retrospective amendment. But our Finance Minister
is a lawyer of great eminence and he knows his law. The Supreme Court is with
him. <br>
<br>
<b>Reasonableness of legislative measures is unknown to our Constitution</b>,
said the Hon’ble Supreme Court in the Indira Gandhi election petition
case. Thirty years after the famous Allahabad High Court judgement unseating
Mrs Gandhi from Lok Sabha, some details of the case are worth recalling. During
the pendency of the election petition in the High Court, Section 77 of the
R. P. Act was amended by an Ordinance, adding an explanation :<br>
<br>
Notwithstanding any judgment, order or decision of any court to the contrary,
any expenditure incurred or authorised in connection with the election of
a candidate by a political party or by any other association or body of persons
or by any individual (other than the candidate or his election agent) shall
not be deemed to be, and shall not ever be deemed to have been, expenditure
in connection with the election incurred or authorised by the candidate or
by his election agent.<br>
<br>
As everyone knows, the Allahabad High Court found Mrs Gandhi guilty and she
took the case to the Supreme Court. During the pendency of the case and while
the nation was under emergency, Parliament passed the Election Laws (Amendments)
Act, 1975 with retrospective effect. Because of these Acts the Supreme Court
upheld her election and observed,<br>
<br>
Retrospective operation of law in the field of election has been upheld by
this Court. Retrospective operation of any law would cause hardship to some
persons or other. This is inevitable; but that is no reason to deny to the
Legislature the power to enact retrospective law. In the case of a law which
has retrospective effect, the theory is that the law was actually in operation
in the past and if the provisions of the Acts are general in their operation,
there can be no challenge to them on the ground of discrimination or unfairness
merely because of their retrospective effect. In other words, if an Act cannot
be challenged on the ground that its provisions are discriminatory or unreasonable
if it is prospective in operation, those provisions cannot be attacked on
these grounds merely because the provisions were given retrospective effect.<br>
<br>
Giving retrospective effect to legislative amendment is accepted to be valid
exercise of legislative power. The power of the Legislature to pass a law
includes a power to pass it retrospectively.<br>
<br>
The basis of the findings on which the High Court held against the successful
candidate is removed by Act 40 of 1975 retrospectively. Were the law as it
is under the amendments introduced by that Act, the High Court could not have
held that the election is vitiated by the two particular corrupt practices.
<br>
<br>
<b>Smt. Indira Nehru Gandhi v Shri Raj Narain</b> - 1975 AIR(SC) 2299<br>
<br>
As early as in 1959, the Supreme Court observed that,<br>
<br>
It cannot be disputed that the legislature has power in appropriate cases
to pass even retrospective legislation. - <b>Thakur Raghubir Singh and Others
v State of Ajmer (Now Rajasthan)</b> - 1959 AIR(SC) 475,<br>
<br>
<b>It’s a sovereign Power: </b><br>
<br>
such a power conferred on a Sovereign Legislature carries with it authority
to enact a law either prospectively or retrospectively, unless there can be
found in the Constitution itself a limitation on that power- <b>J. K. Jute
Mills Company Limited v State of Uttar Pradesh and Another</b> - 1961 AIR(SC)-1534
<br>
<br>
The Apex Court had consistently held that Parliament indeed had the power
to bring in retrospective legislation as the following cases would show. <br>
<br>
All taxation, as shown by its very nature and object, is in the interest of
the general public because it is a contribution for governmental expenditure
from all persons who in some measure are entitled to its benefit.<br>
<br>
The needs of the revenue cannot be known to the courts and cannot be determined
by them, and the sources of revenue are entirely within the knowledge of the
legislature and it is for that department of the State to determine how the
burden will be distributed and why, because that department is the policy
making body and is familiar with the economics and the resources of the country
and its needs. It is for that department in its discretion to select anything
for taxation or to exclude it. - <b>Chhotabhai Jethabhai Patel and Company
v Union of India</b> - 1962 AIR(SC) 1006<br>
<br>
<b>Undoing a court order</b><br>
<br>
It is true that the contributions levied under s. 76(1) of the Madras Hindu
Religious and Charitable Endowments (Amendment) Act, 1954 before it was amended
had the characteristic of a tax, and the levy thereof was accordingly struck
down. But the Legislature had power to enact appropriate retrospective legislation
declaring these levies as fees by denuding them of the characteristics which
went to make the levies of the nature of a tax. - <b>H. H. Sudhundra Thirtha
Swamiar v Commissioner For Hindu Religious and Charitable Endowments, Mysore</b>
1963 AIR(SC) 966<br>
<br>
It is not disputed that the power to make a law necessarily includes the power
to make the provisions of the law retrospective. It is also not disputed that
it is within the competence of a legislature to pass validating Acts, because
the power to pass such validating Acts is essentially subsidiary to the main
power of <b>legislation</b> on the topics included in the relevant List. Therefore,
if the legislature felt that the infirmity in the earlier Act could be cured
and it proceeded to comply with the requirements of Art. 304(b), it cannot
be said that a law passed under Art. 304(b) is void, because the legislature
has thereby attempted to recover taxes which could not be recovered under
the earlier Act owing to the constitutional infirmity in the said Act. - <b>Khyerbari
Tea Company Limited and Another v State of Assam</b> - 1964 AIR(SC) 925 <br>
<br>
It is well-recognised that the power to legislate includes the power to Legislate
prospectively as well as retrospectively, and in that behalf, tax legislation
is no different from any other legislation. If the Legislature decides to
levy a tax, it may levy such tax either prospectively or even retrospectively.
- <b>Jawaharmal v State of Rajasthan and Others</b> 1966 AIR(SC) 764<br>
<br>
It is also well-recognised that Parliament and the Legislatures of the States
can make their laws operate retrospectively. We have also noticed two earlier
instances of retrospective legislation, e.g., The House of Commons (Disqualification)
1813 [<b>Halsbury Statutes of England p. 467] and Sec. 2 of the Re-election
of Ministers Act, 1919 </b>(ibid. p. 515). - <b>Kanta Kathuria v Manak Chand
Surana</b> - 1970 AIR(SC) 694<br>
<br>
<b>No windfall from legislature’s mistakes:</b><br>
<br>
It is necessary that the legislature should be able to cure defects in statues.
No individual can acquire a vested right from a defect in a statute and seek
a windfall from the legislature's mistakes. Validity of legislations retroactively
curing defects in taxing statues is well recognised and courts, except under
extraordinary circumstances, would be reluctant to override the legislative
judgment as to the need for and the wisdom of the retrospective legislation.
<br>
<br>
Taxes are not in the nature of a penalty or a contractual obligation but rather
a means of apportioning the costs of government amongst those who benefit
from it - <b>Ujagar Prints and Others v Union of India and Others</b> - </font><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=50&filename=legal/sc/2002/2002-TIOL-02-SC-CX.htm"><b>2002-TIOL-02-SC-CX</b></a></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><br>
<br>
<b>How is it done? </b><br>
<br>
Sometimes this is done by providing for jurisdiction where jurisdiction had
not been properly invested before. Sometimes this is done by re-enacting retrospectively
a valid and legal taxing provision and then by fiction making the tax already
collected to stand under the re-enacted law. Sometimes the legislature gives
its own meaning and interpretation of the law under which the tax was collected
and by legislative fiat makes the new meaning binding upon courts. The legislature
may follow any one method or all of them and while it does so it may neutralise
the effect of the earlier decision of the court which becomes ineffective
after the change of the law.<br>
<br>
It is open to the legislature to remove the defect pointed out by the court
or to amend the definition or any other provision of the Act in question retrospectively.
In this process it cannot be said that there has been an encroachment by the
legislature over the power of the judiciary. A court's directive must always
bind unless the conditions on which it is based are so fundamentally altered
that under altered circumstances such decisions could not have been given.
- <b>State of Tamil Nadu v Messrs Arooran Sugars Limited</b> - 1997 AIR(SC)
1815<br>
<br>
In a recent decision in the case of <b>ITW SIGNODE</b> - </font><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=50&filename=legal/sc/2003/2003-TIOL-38-SC-CX.htm"><b>2003-TIOL-38-SC-CX</b></a></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif">,
the Supreme Court quoted extensively from several judgements to affirm the
right of the legislature to bring in retrospective legislation: Some extracts:-<br>
<br>
In Shri Prithvi Cotton Mills Ltd. & Anr. vs. Broach Borough Municipality
& Ors. [(1969) 2 SCC 283], it was pointed out that a legislature does
possess the power to validate statutes and to pass retrospective laws. <br>
<br>
In Ujagar Prints and Others (II) vs. Union of India and Others (</font><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=50&filename=legal/sc/2002/2002-TIOL-02-SC-CX.htm"><b>2002-TIOL-02-SC-CX</b></a></font>)<font size="2" face="Verdana, Arial, Helvetica, sans-serif">
wherein after considering various decisions, this Court held thus:<br>
<br>
"A competent legislature can always validate a law which has been declared
by courts to be invalid, provided the infirmities and vitiating infactors
noticed in the declaratory judgment are removed or cured. Such a validating
law can also be made retrospective. If in the light of such validating and
curative exercise made by the legislature - granting legislative competence
- the earlier judgment becomes irrelevant and unenforceable, that cannot be
called an impermissible legislative overruling of the judicial decision. All
that the legislature does is to usher in a valid law with retrospective effect
in the light of which earlier judgment becomes irrelevant<br>
<br>
Such legislative experience of validation of laws is of particular significance
and utility and is quite often applied, in taxing statues. It is necessary
that the legislature should be able to cure defects in statues. No individual
can acquire a vested right from a defect in a statute and seek a windfall
from the legislature's mistakes.<br>
<br>
In Empire Industries Ltd. vs. Union of India </font><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=50&filename=legal/sc/2002/2002-TIOL-27-SC-CX.htm"><b>2002-TIOL-27-SC-CX</b></a></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif">
this Court observed:<br>
<br>
... not only because of the paramount governmental interest in obtaining adequate
revenues, but also because taxes are not in the nature of a penalty or a contractual
obligation but rather a means of apportioning the costs of government amongst
those who benefit from it.<br>
<br>
In a very recent judgement delivered just three months ago, the Supreme Court
again elucidated this point.<br>
<br>
<b>The legislative power to make law with retrospective effect is well recognised.</b>
It is also well settled that though the legislature has no power to sit over
Court's judgment or usurp judicial power, but, it has, subject to the competence
to make law, power to remove the basis which led to the Court's decision.
The legislature has power to enact laws with retrospective effect but has
no power to change a judgment of court of law either retrospectively or prospectively.
The Constitution clearly defines the limits of legislative power and judicial
power. None can encroach upon the field covered by the other.<br>
<br>
Every sovereign legislature possesses the right to make retrospective legislation.
<b>The power to make laws includes power to give it retrospective effect.<br>
</b><br>
In 73rd volume of Harvard Law Review, page 692 it was observed that 'it is
necessary that the legislature should be able to cure inadvertent defects
in statutes or their administration by making what has been aptly called 'small
repairs'. Moreover, the individual who claims that a vested right has arisen
from the defect is seeking a windfall since had the legislature's or administrator's
action had the effect it was intended to and could have had, no such right
would have arisen. Thus, the interest in the retroactive curing of such a
defect in administration of government outweighs the individual's interest
in benefiting from the defect." <br>
<br>
<b>It is well settled that if the legislature has the power over the subject
matter and competence to make a valid law, it can at any time make such a
valid law and make it retrospectively so as to bind even past transactions.
The validity of a validating law, therefore, depends upon whether the legislature
possesses the competence which it claims over the subject-matter and whether
in making the validation it removes the defect which the courts had found
in the existing law.</b><br>
<br>
There is a distinction between encroachment on the judicial power and nullification
of the effect of a judicial decision by changing the law retrospectively.
The former is outside the competence of the legislature but the latter is
within its permissible limits. <br>
<br>
- <b>Virender Singh Hooda and others v State of Haryana and another</b> -
2004 Indlaw SC 958 <br>
<br>
All fine, but why go all the way up to the Supreme Court if the Government
is going to bring in a retrospective legislation. Can there be some Advance
Ruling Authority for this? Or before a case is admitted in the Supreme Court
the Government should be made to give an undertaking that there will be no
retrospective legislation on that issue; if the Government does not give that
undertaking retrospective legislation should be done immediately. At least
this will save the time of the Apex Court and some hard cash for the victim.
<br>
<br>
The Supreme Court had in the very famous Ranadey Micronutrients case - </font><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=50&filename=legal/sc/2002/2002-TIOL-184-SC-CX.htm"><b>2002-TIOL-184-SC-CX</b></a></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif">
- had observed, Consistency and discipline are of far greater importance than
the winning or losing of court proceedings.<br>
<br>
<font color="#009933"><b>Kerala High Court stays service tax on goods transport</b></font><br>
<br>
The writ petition challenging the new Rule 2(1)(d)(v) of the Service Tax Rules
has been admitted by the Kerala High Court granting an interim stay for one
month. Though the challenge is to Notification No. 35/2004-ST., dated 3-12-2004,
government has by Notification No. 36/2004-ST., 31-12-2004, rectified any
possible lapse in 35/2004. So the Kerala Stay may not be all that good news
for service tax payers ultimately. – see </font><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=51&filename=legal/hc/2005/2005-TIOL-06-HC-KERALA-ST.htm"><b>2005-TIOL-06-HC-KERALA-ST</b></a></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><br>
<br>
With so much of judicial wisdom for the day,<br>
<br>
<font color="#FF0000"><b>Until tomorrow with more of DDT<br>
<br>
Have a Nice Day<br>
<br>
<br>
Mail your comments to</b></font> <b>vijaywrite@taxindiaonline.com </b></font>
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